‘Drastically incorrect’ mortgage advice

Posted: 12th October 2012

A woman who invested heavily in the doomed Spanish property market on the basis of a mortgage broker’s ‘drastically incorrect’ advice was not fairly compensated by the Financial Services Compensation Scheme Limited (FSCS), a High Court judge has ruled.

Charmaine Emptage wanted to reduce her mortgage and pay it off early but ended up in a quagmire of debt due to the broker’s negligence. On his advice, she swapped the £40,000 repayment mortgage on her home for an interest only mortgage of more than £111,000 and ploughed over £70,000 into a Spanish property.

Mr Justice Haddon-Cave said that the broker’s advice turned out to be ‘drastically incorrect’ and there was no dispute that it was negligent. When the Spanish property bubble burst in 2009, Ms Emptage was saddled with a huge mortgage that she had no prospect of repaying and a Spanish property investment worth virtually nothing.

Faced with the prospect of losing her home, Ms Emptage applied to the FSCS which, in January 2010, awarded her £11,522.98, a sum which was attacked by her legal team as derisory and irrational.

In a ruling expected to have a major knock-on effect on other similar cases, the judge upheld Ms Emptage’s judicial review challenge, saying that the award ‘in no way represented fair compensation’.

He said that the FSCS had failed to abide by the principle that victims of negligent financial advice are entitled to be compensated for the ‘mischief’ caused and, as far as possible, to be put back in the same position that they would have been in had the breach of the rules not occurred.

‘In essence, the FSCS failed to compensate Ms Emptage for the relevant breach in question, namely the negligent mortgage advice which left her with a large mortgage which she had no means of repaying...FSCS misdirected itself and acted irrationally’, the judge concluded.

The FSCS was ordered to pay Ms Emptage's legal costs - which came to £150,000 - but was granted permission to appeal after the judge recognised that the case raised important issues of principle with potentially wide implications.